Tuesday, October 07, 2008

The next trillion dollar bailout

It's coming. Will the states do anything today to ebb the tide of the coming state pension collapse?

The value of pension promises already made by US state governments will grow to approximately $7.9 trillion in 15 years. We study investment strategies of state pension plans and estimate the distribution of future funding outcomes. We conservatively predict a 50% chance of aggregate underfunding greater than $750 billion and a 25% chance of at least $1.75 trillion (in 2005 dollars). Adjusting for risk, the true intergenerational transfer is substantially larger. Insuring both taxpayers against funding deficits and plan participants against benefit reductions would cost almost $2 trillion today, even though governments portray state pensions as almost fully funded.

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1 comment:

Anonymous said...

Did Caleeforneea and Massachusetts do anything to stem the tide of their current financial debacles? Nope!